'Bricks and Mortar' Portfolio Posts Big Gains

Editor's note: "Bricks and Mortar" is a mock portfolio created by reporter Nicholas Yulico that is meant to help generate real estate and gaming-related stock ideas. In keeping with TSC's editorial policy, Yulico doesn't own or short individual stocks.

The fourth quarter started off with a bang for the broader stock market on Monday, and the Bricks and Mortar mock portfolio surged on the rally.

The portfolio is now up 23.2% since its inception in late January, handily beating the S&P 500's return of 8.3% in the same period.

Such outsized returns make it a nice time to examine what's working and whether there are still stocks left to buy in the real estate and casino sectors.

From a top-down sector perspective, I believe homebuilder stocks will remain a disaster and should not be bought. I've been bearish on the group for a year now and continue to flag Ryland(RYL Quote) as overvalued.

There's no reason to buy into a group where nearly all builders are reporting losses, and the future will get uglier because of pricing wars across the industry -- a thesis I laid out in a recent article. I believe the two-day rally this week in the stocks will be temporary and will eventually fade once investors realize a housing recovery is more than a year away.

Real estate investment trusts, or REITs, have reported strong fundamentals in recent months, but the stocks are off about 10% this year. Takeout premiums left the sector after the credit crunch that has shut off new private-equity deals. Nonetheless, office owner Brookfield Properties(BPO Quote) remains a solid bet.

There also remain a few good buys in the lodging and casino space, such as portfolio holdings Melco PBL(MPEL Quote) and Starwood Hotels(HOT Quote).